This invention relates to allowing owners of assets to increase their investment returns, including allowing owners of relatively illiquid assets to obtain a superior return on their equity in those assets. More particularly, the invention relates to method and apparatus for obtaining guarantees of the value of the owner's equity in assets in order to facilitate the use of those assets to generate investment returns or other economic benefits for the asset owners.
Owners of certain types of relatively illiquid assets may seek ways to put those assets to productive use. There are many known mechanisms through which an asset owner increase the liquidity of illiquid assets, freeing up the equity in those assets for productive use.
However, there are many assets whose equity is underutilized or not efficiently utilized. This is because the ways in which the owner of an asset can monetize his or her equity in the asset without selling it outright are generally limited by one or more of (a) the owner's own credit characteristics, (b) the existence, or not, of a market for lending against the particular type of asset, and (c) prevailing interest rates.
For example, owners of real estate (in addition to putting the land itself to productive agricultural, residential, or commercial use) commonly borrow against their property by way of a mortgage or a home equity line of credit.
However, no existing mechanism provides a flexible solution that can, on the one hand, be applied to a variety of assets and, on the other hand, facilitate a large number of potential uses for those assets in the marketplace on a more advantageous basis than the owner could achieve individually. Further, existing mechanisms fail to maximize the return to the asset owner or have other inherently undesirable characteristics.
Current methods for monetizing the owner's equity in an asset by borrowing against its value are inherently inefficient. For example, in exchange for a loan, the asset owner typically makes a payment or payments to the lender at a disadvantageous rate of interest. Consequently, any return that the owner may make from investing the borrowed money needs to be offset against the owner's liability to make a payment or payments of interest and principal to the lender at a premium rate relative to the risk to the assets. Further, the asset owner is rarely able to borrow funds representing more than a fraction of the value of the owner's total equity in the asset.
Again considering real property as an example of a relatively illiquid asset, home equity lines of credit or mortgage lending provide two well known methods of borrowing against an asset. Reverse mortgages are a further example of one such less-than-optimal borrowing mechanism for real property, as reverse mortgages likely result in the eventual loss of the pledged real property asset so that it will be unavailable to the owner's estate.
The insurance market known as Lloyd's of London provides a mechanism for “providers of capital” to earn a return on their property without borrowing against it, by instead using capital assets to underwrite potential insurance losses. In the Lloyd's market, individual or corporate members underwrite certain insurable risks. This is accomplished by the use of a variety of intermediaries, including brokers, recurring annual syndicates, the syndicates's managing agents, and members's agents, as well as the various corporations formed by the Lloyd's market to assist with the insurance functions of policy writing and claims management. Corporate insurers who participate in the Lloyd's market can avoid using many of these intermediaries by forming Integrated Lloyd's Vehicles, wherein many of the functions provided by agents are combined in a single entity under the insurer's control.
The Lloyd's market also benefits from certain oversight and risk management functions undertaken by Lloyd's of London itself, as overseen by the Council of Lloyd's. The peculiar structure and object of the Lloyd's market is governed by a United Kingdom statute, and the structure of the Lloyd's market has been altered from time to time by the Parliament of the United Kingdom. As such, Lloyd's has a unique structure which is inexorably linked to its particular object and history, to exist as a marketplace for insurance that connects providers of capital who wish to act as insurance underwriters with insurable risks through several layers of highly structured and unique intermediaries. The Lloyd's market does not increase the liquidity of its member's assets and its activity is limited to insurance.
It would be desirable to be able to provide a method and apparatus that would allow an asset owner to obtain a superior return on the asset owner's equity in the asset, regardless of the liquidity of the asset.